Enzio's Clock

Background

1. Beijing's energy policy

As we pointed out in today's sister piece on China's inflation, Beijing wants to curtail investment in energy-intensive sectors like steel, electrolytic aluminum and zinc. The thinking is that higher steel prices are passed-on, creating spillover effects. The bottom line is that cost-push inflation destabilizes the poorer parts of the population, something which Beijing clearly does not want. Mitigating social unrest is in effect what the recent NPC was about.

Before we discuss Beijing's evolving energy policy, here are some interesting investment facts:

• China is the world's second largest consumer of energy, and Asia's third biggest nuclear energy producer (after Japan and Korea);
• After coal power and hydro-power, nuclear power is China's third most important method of generating electricity;
• Total nuclear power output was 54.3 billion gigawatts last year
  
• Of this, China's nine commercial nuclear power reactors, generated about 7 gigawatts of nuclear power - or 13% of total nuclear power output. This commercial nuclear power output is equates to 1.6% of China's total power generating capacity;

Here are some worthwhile facts on Beijing's evolving energy policy:

NUCLEAR ENERGY

• WHY. Going beyond the short-term goal of cutting cost-push inflation, under President Hu's governing philosophy of a "scientific outlook of development", he wants to create more sustainable growth inter alia by promoting energy efficiency.
• WHAT. Beijing intends to throttle the rate of energy consumption per unit of GDP by 20% between 2006 - 2010. In order to achieve this, by 2020 Beijing's State Council wants to spend RMB 450 billion on nuclear power plants, thereby reducing reliance on coal and oil. Beijing plans to
• increase nuclear generating capacity to 40 gigawatts; of this, 18 gigawatts will be in place by 2020, at which time nuclear energy will account for four percent of total energy generating capacity (up from the current two percent), and
• expand nuclear power production to 260 billion - 280 billion kilowatts by 2020;
• WHERE. The State Council has selected 13 coastal sites in which to place greater nuclear facilities. Emphasis will be on constructing nuclear sites in Shandong, Fujian and Guangxi provinces, as they do not have any nuclear capability yet. The following inland provinces are conducting their own preliminary studies on where to place nuclear sites: Jiangxi, Henan, Hunan, Anhui, Hubei, Chongqing, Sichuan and Gansu.

RENEWABLE ENERGY

• The top economy planner, the National Development and Reform Commission (NDRC), plans to increase the ratio of renewable energy to total energy consumption from a current 8% to 10% by 2010 and to 15% by 2020, and
• The NDRC plans to spend RMB 2 trillion on such renewable energy by 2020.
• So, if the NDRC is going to spend RMB 450 billion on nuclear energy, and a total of 2 trillion on all renewable energy, then what will it spend the remaining RMB 1.55 trillion on

Obviously, the more that China goes nuclear, the more that the United States will be concerned about her nuclear military capabilities. Which will bring us to the theme of defence some time this week...

How to Save/Make Money Off This Idea

1. Always talk with your financial adviser first!
2. Buy China's major power companies - especially those that are following Beijing's environmental edicts, as they will be favoured the most by Central Government.
3. Buy excellent, global engineering companies that will be supplying China's provinces with the required hardware and software.
4. Find out what energy generation Beijing will spend RMB 1.55 trillion on - this is on top of the RMB 450 billion she intends to spend only on the generation of nuclear power.